Consider a firm as we did in the notes that maximizes it profits by selecting how many workers and how much capital to use. For this problem, set P = $1, W = $10, A = 10/.7, r = .01, pk = .01, d = .1, and K = 5. Use the Cobb-Douglas production, so that revenue for this firm is PAK.3L.7 .
a. How many workers would this firm hire? Hint: be sure that you compare the added benefits and added costs of each worker when the Cobb-Douglas production function is used.
b. If K rose to 7, would this firm hire more or fewer workers? Why?